The Rossoneri were stuck in mid-table mediocrity back in November, but a string of terrific results has seen them in with a genuine chance of a top-three finish and Champions League qualification.
"I’m very happy with what the players have done as they’ve raised expectations among the fans,” Allegri said at Milan’s pre-match press conference ahead of Sunday’s clash with Palermo.
“No one would even have imagined that we’d be in the position that we are in now regarding qualification for the Champions League.
“Now we’re back to thinking about the main objective for this season which is Champions league qualification. There are six teams looking for second and third place.”
Allegri then lamented his side's missed opportunities in their 4-0 second-leg defeat to Barcelona, which ultimately cost them a place in the quarter-finals, while backing the club's youthful recruitment policy.
“We had the best chance of the match through [M’Baye] Niang and we knew that we had to take any chances we got,” he continued.
“We had another chance through Robinho and a third when we slipped up on the final pass. I think this team has done something extraordinary which no one expected. We need regularity in our results in the league and balance as well, as there are 38 games.
“You can either buy players who have already proved themselves at the highest level, or you can look for young players with quality.”
Allegri has been linked with a move away from San Siro in recent weeks but the Italian refused to be drawn on any concerns over his current deal.
“Many things have been said about my contractual situation. My current deal runs out in 2014 and in football you need to get results. I’m not worried about my contract,” he insisted.
“If I’m not mistaken, a couple of months ago a place in the Europa League was just a mirage and now it seems that third place would be considered a failure. Balance is needed.
“There’s no point talking about my future. I have a contract here and I intend to respect it. Now we have to focus on our objectives.”
The former Cagliari boss also defended Niang and Stephan El Shaarawy for their performances at Camp Nou and in recent weeks, suggesting that their youth and inexperience must be taken into consideration.
“Niang is a young player and against Barcelona he played as a centre forward but at the moment, given his age, he’ll play better out wide and lack of experience,” Allegri added. “In that position the defenders won’t be so close to him. In the future he’ll be either a centre forward or one of two forwards.
“It’s not true that El Shaarawy is going through a bad period. No player in the world can play at such a high level for 10 months.”